By Alexander R. McDaniel
Sen. Tom Harkin, D-Ia., recently proposed raising the minimum wage to $10.10 per hour. On March 5 he tweeted, “Raising the minimum wage is an issue of economic justice. It will stimulate our economy and generate new jobs.”
Harkin could not be more wrong. I intend to prove that the opposite is true using explanations right out of a principles of macroeconomics textbook, a book Sen. Harkin ought to read.
His proposal is unmistakably intended to help low-wage, low-skill employees — a noble and lofty goal. The real question is, are the increases in minimum wage worth the current amount of work completed?
I don’t think they are.
I have never been paid more than $10 an hour, and rightly so. I don’t feel the work that I have done warrants this level of pay. This idea seems worthy at face value, but good policy is grounded in sound logic and careful thought, not sympathy.
Aminimum wage is what economists call a price floor. A price floor is used in a market to ensure that prices don’t fall below a certain level. Binding price floors are always set above the equilibrium price (where supply meets demand); any price floors set below equilibrium are redundant.
There are no economic benefits to price floors. By existing above market price, they keep supply higher than demand, which creates a surplus in the jobs market.
In the jobs market, a surplus is synonymous with unemployment. The quantity demanded of labor shrinks because businesses cannot afford to employ the current work they have. The logic being when the price of anything we use increases, we tend to use less of that thing. The quantity supplied of labor increases because higher wages entice more people to enter the job market.
Increasing the minimum wage
(raising the price floor) will have disastrous effects on the U.S. economy. The number of unemployed will increase, while the number of employed people will decrease.
We would actually employ fewer people than before the minimum wage increase. Those who become unemployed by the increase in the minimum wage may turn to unemployment benefits. Unemployment in this country is just under 8 percent. Let’s eliminate a problem by avoiding its causes. In a country where overspending and unemployment are already major problems, it is nonsensical to encourage even greater entitlement spending and implement programs that increase unemployment.
If we can’t raise the minimum wage, what can we do?
An alternative is to expand the earned income tax credit. The EITC was created in 1975 with the intention of providing more incentives to work. According to the IRS, the EITC is a refundable federal income tax applicable to both individuals and families who qualify.
What is superior about the EITC is that it is means tested. Means tests eliminate potential recipients who don’t need the assistance.
An increase in the minimum wage doesn’t differentiate between a high school student earning money on the side and a single mother working extra shifts to make ends meet. Expanding the EITC allows the single mother to keep more of her earned income while recognizing that the high school student doesn’t need the wage increase.
Sen. Harkin has honorable intentions. However, the consequences of increasing the minimum wage would far outweigh any benefits. I encourage you to contact him and explain that a minimum wage increase is not the answer to providing a safety net to our fellow citizens who are truly in need.
[This piece appeared in yesterday’s Des Moines Register. Thanks to ALEXANDER R. MCDANIEL for permission to run it on Quiner’s Diner. He is a student at the University of Northern Iowa in Cedar Falls. He is president of the Kappa Sigma fraternity. Contact: firstname.lastname@example.org.]